If you ask the average Barbadian what he or she thinks of the International Monetary Fund (IMF), the most likely response will be that the IMF goes into developing countries, tells governments they must devalue the national currency, raise taxes, fire government workers, and make citizens foot some of the costs of hitherto “free” education, health care and other vital social services.
Public opinion and perception of the IMF, especially in developing countries, are overwhelmingly negative. The mere mention of its name, especially in a context where the government announces or is reported to be considering approaching the Washington-based international financial organization for support to address an economic crisis, is often enough to trigger disquiet and trepidation within the population.
But is the IMF’s reputation which causes it to be viewed as a sort of big bad wolf justly deserved or is it a case where the organization has been unfortunately scapegoated because of a misunderstanding of its role? This question merits consideration amidst ongoing debate as to whether Barbados should enter a formal IMF programme to correct structural problems in the economy that have contributed to a protracted crisis and have generally defied the “homegrown” measures.
Despite repeated calls from the private sector, some economists and others for Government to enter into a formal IMF programme, the incumbent Democratic Labour Party (DLP) administration has remained adamant it is not going this route, while affirming its faith in its “homegrown” measures which so far have generally fallen short of resolving the deep-seated issues, especially the unsustainable fiscal deficit. What could possibly explain the Government’s hesitance? Maybe the fact that the IMF’s record in assisting developing countries is rather unflattering, especially at the height of pushing the “structural adjustment” agenda during the 1980s and 1990s. Indeed, Nobel Prize-winning economist Joseph Stiglitz blames the IMF for often worsening economic crises it was called on to solve. However, evidence suggests the IMF of today is more flexible to deal with, having apparently learned from past mistakes, especially with regard to pursuing what was described as “one size fits all” approach to economic problem-solving.
Indeed, it can be argued that Barbados contributed to this softening of position. In the 1990s, devaluation was often inescapable as a conditionality for accessing IMF financing and gaining its “seal of approval” which international lenders and investors consider as evidence that the country is taking the correct steps to resolve its problems. Though initially placed on the table, devaluation was not part of the agreement eventually concluded by the then Erskine Sandiford administration.
It proves the point that in negotiating with the IMF, a country can sometimes get what it wants based on the strength of its argument. Barbados, therefore, can draw confidence from this past success in negotiating any future agreement with the IMF that would open the door to accessing international financing in the form of loans and via foreign direct investment that would greatly bolster the declining foreign reserves.
As Government has introduced many IMF-type measures requiring sacrifice on the part of the citizenry, it would be prudent to rethink its opposition to entering a formal IMF programme if only for the purpose of regaining access to the capital markets and obtaining the IMF’s “seal of approval” which is a confidence booster for investors. Further, being in a formal IMF programme would impose fiscal discipline on Government that has been evidently lacking in many instances.
Examining Venezuela’s current dismal economic plight, development economist Ricardo Hausmann, a professor of the practice of international development at Harvard University, remarked: “The tragedy is that most Venezuelans [and many citizens of other countries] believe that the IMF is there to hurt, not help. As a consequence, they eschew the massive resources and wisdom that the international community can offer at a time of economic crisis to lessen the pain and hasten recovery.”
There is no denying that IMF assistance always comes at a cost, in the same way that a sick patient must take bitter medicine to have a chance at getting better. As the IMF does not come knocking on the door to offer assistance or imposes its will on any sovereign country, it behooves governments to always manage their resources so prudently that there would hardly ever be need to go to the IMF in the first place.
Truth be told, the IMF in the past has sometimes served as a convenient scapegoat by many Third World governments looking to escape responsibility for the economic mess they have created through poor management practices.